The House of Representatives just passed not one, not two, but three different bills that would expand the definition of “accredited investor.” Does this mean the definition will change? No.
The three proposed changes are:
- Include in the definition of accredited investor anyone who says he or she understands the risks, using a form of not more than two pages issued by the SEC. This would effectively eliminate the concept of accredited investor.
- Include in the definition of accredited investor anyone who has received personalized advice from a person who has himself or herself become an accredited investor under 17 CFR §230.501(A)(10), by passing an exam approved by the SEC. The mystery here is why the proposed bill wouldn’t include anyone who has received personalized advice for a registered investment adviser.
- Allow anyone, including non-accredited investors, to invest in the aggregate up to 10% of their income or net worth in private securities. No time period is provided.
The proposed changes to the definition of accredited investor are part of a larger package of legislation that would ease more than a dozen rules in the federal securities laws, including:
- Expand the definition of “emerging growth companies.”
- Create a safe harbor for brokers and finders in private placements.
- Ease the “independence” rule for auditors.
- Ease the registration requirements under section 12(g) of the Exchange Act.
- Expand the definition of venture capital fund for purposes of section 3(c)(1) of the Investment Company Act.
- Add a new exemption under the Securities Act of 1933 for issuers raising less than $250,000.
- Double the Regulation A offering limit from $75,000,000 to $150,000,000.
And so on.
This legislation can best be understood by reference to the man who introduced it, Representative McHenry of North Carolina. Representative McHenry was the principal sponsor of the JOBS Act, which created Crowdfunding. Before and since, he has been an advocate for improving access to capital for entrepreneurs and giving ordinary Americans access to opportunities now reserved for the very wealthy.
But Representative McHenry is leaving Congress. He was a close friend of Kevin McCarthy and briefly assumed leadership of the House when McCarthy was deposed. That episode seems to have drained his enthusiasm; he announced his plan to retire shortly afterward.
This legislation should probably be viewed as Representative McHenry’s swan song, his wish list, even his legacy. Unfortunately, and as I’m sure he recognizes, it’s likely that none of it will find its way into law.
Questions? Let me know.